Many formerly popular growth stocks spiked higher in early 2023. With its 30% rally since the start of the year, Beyond Meat (BYND 4.62%) easily fits into that category.
Yet, the shares remain down by nearly 70% in the last full year, reflecting deep challenges for the plant-based meat specialist on both the growth and earnings fronts. With that big picture in mind, let's look at a few reasons to be cautious about jumping into the stock today.
No clear stabilization
Beyond Meat's last few earnings reports gave shareholders very little to celebrate. The company missed growth expectations through most of 2022. That included a painful 23% sales decline in the third-quarter period that ended in early October. Net losses landed at $102 million that quarter, or 123% of revenue. The company even lost money on a gross basis due to write-downs associated with its beef jerky style product.
BYND Operating Margin (TTM) data by YCharts
Sure, those poor results will improve as the company adjusts its production and inventory levels to account for today's weaker demand for plant-based meat products. But it isn't clear today that there's a strong and growing appetite for its beef, chicken, and pork substitutes.
Recent product introductions have failed to spark a rebound. As a result, investors might want to wait for clear signs that sales trends have stabilized before buying the stock.
Losses are huge
While the growth rebound is speculative, Beyond Meat's losses are very real. Operating losses grew to $270 million in the past nine months compared to $191 million a year earlier. Wall Street is bracing for another large reported loss when the company announces fourth-quarter results in late February.
The good news is that management isn't ignoring the scope of this financial challenge. "Beyond Meat is executing a full force pivot to a sustainable growth model," CEO Ethan Brown said in mid-November as executives predicted a return to positive operating cash flow by late 2023.
Look elsewhere
The bullish case for Beyond Meat stock assumes that these cost cuts will help the company navigate through a temporary industry slump that will remove many weaker competitors. Once demand begins growing again, the theory goes, then it will be in a much stronger market share and profitability position.
There are many things that could go wrong with this plan, though. Besides the risk of a recession ahead, the plant-based food industry might not bounce right back to the type of growth levels that investors saw prior to, and during the height of, the pandemic. Consumers might not be willing to pay as high a premium going forward, too, and so Beyond Meat's gross profit margin might not fully recover. It's also possible that the industry remains intensely competitive, with no clearly dominant brand.
Beyond Meat might ease a few of those fears in its late February earnings update, which will also include management's detailed outlook for fiscal 2023. But investors should still be extra careful about buying the stock in hopes of riding a quick price rebound. Watch Beyond Meat from the sidelines instead -- at least until the company shows that it can generate sustainable profits.
